SectionB

Question 1

Alan Blinder’s survey of firms found that the theory of price stickiness accepted by the most firms was:

coordination failure.
menu costs.
procyclical elasticity.
nominal contracts.

Answer 1

coordination failure

Question 2

Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity.

weaker; stronger
weaker; weaker
stronger; weaker
stronger; stronger

Answer 2

weaker; stronger

Question 3

Business cycles are:

irregular and unpredictable.
regular but unpredictable.
regular and predictable.
irregular but predictable.

Answer 3

irregular and unpredictable

Question 4

Recessions typically, but not always, include at least ______ consecutive quarters of declining real GDP.

four
six
eight
two

Answer 4

two

Question 5

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

Central Bank A should keep the quantity of money stable whereas Central Bank B should increase it.
Central Bank A should increase the quantity of money whereas Central Bank B should keep it stable.
both Central Bank A and Central Bank B should increase the quantity of money.
both Central Bank A and Central Bank B should keep the quantity of money stable.

Answer 5

Both central bank A and B should increase the quantity of money

Question 6

If a change in government regulations allows banks to start paying interest on checking accounts, this will:

increase the demand for money.
have no effect on the demand for money.
decrease the demand for money.
increase the demand for currency but decrease the demand for checking accounts.

Answer 6

increase the demand for money

Question 7

The price level decreases and output increases in the transition from the short run to the long run when the short-run equilibrium is _____ the natural rate of output in the short run.

equal to
above
either above or below
below

Answer 7

below

Question 8

The long run refers to a period:

during which prices are flexible.
during which capital and labor are sometimes not fully employed.
of decades.
during which output deviates from the full-employment level.

Answer 8

during which prices are flexible

Question 9

Which of the following is an example of a demand shock?

a drought that destroys agricultural crops
unions obtain a substantial wage increase
a large oil-price increase
the introduction and greater availability of credit cards

Answer 9

the introduction and greater availability of credit cards

Question 10

In the short run an adverse supply shock causes:

prices to rise and output to fall.
both prices and output to fall.
prices to fall and output to rise.
both prices and output to rise.

Answer 10

prices to rise and output to fall

Question 11

The General Theory of Employment, Interest, and Money, written by _______ and published in _______, transformed the way economists thought about macroeconomics.

Paul Samuelson; 1940
Paul Lucas; 1966
Milton Friedman; 1946
John Maynard Keynes; 1936

Answer 11

John Maynard Keynes

Question 12

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run.

prices; prices
output; prices
output; output
prices; output

Answer 12

output; prices